Retirees, on Wednesday, March 16th the Legislative Pension Oversight Committee met for the final time after nine months of meetings. They approved a handful of reforms that should improve certain aspects of the Retirement Systems of Alabama (RSA).
One of the reforms was the establishment of cash-based retirement accounts for newly-hired employees (January 1, 2018). This would require passage by both chambers and the governor’s signature to become law. If implemented, RSA would offer essentially a new tier of retirement benefits. This new tier would offer a cash-account-based retirement, similar to a private sector 401(k) fund, to new hires. Rep. Lynn Greer as vice chair crafted this bill with assistance from the Alabama Policy Institute.
The cash account recommendation and accompanying draft legislation were approved by a 6 – 2 vote of the panel, but considering the session is already past its half-way point, the likelihood of any substantial reform measure passing before next year is slight. It should be noted that RSA officials oppose this plan and were promised by the committee leadership that they could address the issues before the vote. However, this did not occur.
Representatives from RSA have previously warned that implementing a hybrid plan is not necessarily less costly than the current defined benefit program, and, in some cases, is even more expensive than the present-day system and does nothing to address the unfunded liability of the pension system.
The Retirement Systems of Alabama did support some of the committee’s approved recommendations, such as requiring new hires to be automatically enrolled for at least 90 days in the RSA-1 supplemental retirement plan offered by the state. Because the Tier II retirement plan that was approved by the Legislature roughly four years ago guarantees less of a retirement benefit than Tier I, the auto-enrollment pension supplement is designed to help inflate Tier II participant’s retirement resources.
The reforms considered by the committee were suggested by the Pew Charitable Trust, a public policy think tank that has received substantial funding from special interests opposed to the continued existence of defined benefit pension programs across the nation.
ETF BUDGET STATUS
Although it seemed like the ETF Budget was on the fast track and word was the budget would be passed prior to Spring Break (beginning 3/24 and return on 4/5), this will not happened. The ETF Budget was approved in the House of Representatives and is awaiting the hearing process in the Senate. Senator Arthur Orr, Chair of the Senate Finance and Taxation Education Committee has commented that the budget will not be heard until after the Spring Break. What does that mean for education retirees? You still have time to work with your Senator to get an amendment for a 13th/bonus check (Formula is years of service x $24). Senators will be in Montgomery 3/22-23 and then head home. Call them, meet with him/her, and express the need for a 13th check. Ten years is a long time without an increase. Let’s also remind your Senator that the ETF should not be the answer for the General Fund financial woes. The General Fund Budget as it stands currently will be vetoed by Governor Bentley. Is there a special session in the near future?
For those of you wondering why retirees are not getting a COLA and the actives in line to get a raise the answer is – UNFUNDING LIABILITY. Each COLA granted negatively impacts the funding level as the RSA must use funds to pay the first year’s COLA. Each one percent costs approximately $50M. The one-time bonus check will cost $46M. To demonstrate the strong desire to NOT grant a COLA, Rep. Greer asked the Legislative Pension Oversight Committee to consider proposing a constitutional amendment to never provide an unfunded COLA again. Luckily wiser minds prevailed but there are some in the legislature that feel very strongly against a COLA. It is not due to lack of effort on the part of AERA.
Just a reminder that the 2016 AERA Annual Meeting is Tuesday, March 29 at the Cahaba Grand Conference at 9:30 a.m. This meeting offers great speakers, awards and scholarships presented and so much more. Hope to see you in Birmingham.
Janice J. Charlesworth
Alabama Education Retirees Association
800-537-6867 or 334-262-4177